Wednesday, 29 December 2010

No country better illustrates the tangled web of political and economic relations in the Middle East than the Republic of Cyprus. This divided island about 40 miles off the southern coast of Turkey has managed to maintain useful relationships with the Arabs and Israel while simultaneously poking a finger in the eye of its large, implacable foe – Turkey.

The current issue involves the large deposits of natural gas and oil that have been discovered in the waters of the eastern Mediterranean. Rather than create a deadly free-for-all about who owns what Cyprus has negotiated what it calls Exclusive Economic Zones carefully delineating areas of economic interest with Israel, Lebanon, and Egypt. No agreement with Syria has been reached yet, but Syrian president Bashar al-Assad recently paid a two-day visit to Cyprus to discuss areas of economic cooperation. Given Syria’s close ties to Turkey, this visit has to be counted a major success for Cyprus.

The latest economic zone agreement with Israel annoyed the Turks who went so far as to call in the Israeli ambassador to express their displeasure and note that this agreement interferes with efforts to re-unite the island. As Turkish journalist Burak Bekdil notes, the Israeli ambassador could well have asked why similar concerns were not expressed with Lebanese or Egyptian agreements. Semih Idiz noted in another column that the waters of eastern Mediterranean are heating up with the hydro-carbon discoveries.

The island of Cyprus has been divided since 1974 when Turkey landed troops and occupied about 30% of the island. In the Turkish version the landing was necessary to protect the Turkish minority from ethnic cleansing by gangs of Greek thugs. In the Greek Cypriot version the Turkish military landing was an invasion pure and simple. The Turks established something called the Turkish Republic of Northern Cyprus that is officially recognized only by its patron Turkey. The Republic of Cyprus, meanwhile, is the internationally recognized government of the island and is a member of the European Union.

There have been half-hearted attempts to re-unite the island, but, given their strong international position and thriving economy, it is hard to see why the Greek Cypriots would be interested in a deal. Turkey, on the other hand, would love to see a settlement for at least two reasons. Its refusal to recognize the Republic of Cyprus as the legitimate government of the island is a major block to its EU pretensions. Second, maintaining the Turkish Republic of Northern Cyprus, costs the Turkish treasury $400 million a year – money that could be better spent in Turkey itself. In addition, Turkey continues to station about 30,000 troops in the northern part of the island. The economic gulf separating the two sides of the island is only widening as the 800,000 Greek Cypriots enjoy a per capita income of $28,000 while the per capita income of the 256,000 Turkish Cypriots is less than half that amount.

The Republic of Cyprus also benefits from its 10% corporate tax rate for onshore and offshore companies. It is interesting to note that the European Union is demanding that Ireland increase its similarly low tax rate, but no one says anything about Cyprus. Banks in the Republic of Cyprus have also made themselves useful to Russians looking for somewhere to keep their piles of cash. The TRNC meanwhile has no international trade (other than with Turkey) to speak of, and relies heavily on casinos that attract the high rollers from Turkey where casinos have been banned for several years because of their connection to organized crime.

Despite Turkey’s push to improve ties with the Arab world, no Arab country has reciprocated by daring to recognize the Turkish part of the island. Even Turkey’s cousins in Azerbaijan and close Moslem brothers in Pakistan have refused recognition. Their ties with the Republic of Cyprus, and by extension Greece and the entire European Union, are too valuable. One small example is that when visiting many Arab countries I often recall commenting on the quality of various products imported from Cyprus. This comment would be greeted with hoots of laughter, and I would be told that the product was actually manufactured in Israel. It would be sent to Cyprus, have the labels switched and then sent to countries that officially boycott goods from Israel.

The oil and gas discoveries in the eastern Mediterranean are a potential economic ‘game changer’ for the region, and one can only hope that these new economic zone agreements can avoid turning this positive development into yet another reason for conflict.

Wednesday, 22 December 2010

There are cities best experienced in the warm spring and summer months, and there are cities that shine brightest when snow starts to fall. Paris and Rome are famous for their sidewalk cafes filled with people watching other people – most of whom are scantily clad wearing very expensive thin bits of leather on their feet. Very nice in May; very cold, wet and miserable in December. Parisians and Romans don't do puffy down parkas and sensible shoes. The trouble is you can not even warm up by going inside, where you are often greeted with the incredulous attitude ‘This is Paris. You want central heating too?’

Then there is Vienna. This old imperial city is pleasant in the summer but doesn’t really display all its finery until December. The Christmas markets, the concerts, the decorations down Karntner Strasse, and, perhaps most of all, the welcoming, warm coffee houses where you can fill the long hours between breakfast and lunch by indulging in rich coffee topped with thick cream and a few of the ever-so-delicate pastries. You are welcome to stay as long as you want, and most coffee houses provide newspapers to pass the time while you sample the Sachertorte or perhaps the Esterhazy Torte.

Unlike Londoners, the Viennese do not go wobbly in the knees at the first hint of snow. Streets and sidewalks are cleared faster than ladies can get their fur coats out. One of the best views of the ornate, imperial architecture decorating Vienna like an operatic stage set is from the inside of a warm tram as it rattles gently around the elegant Ring in a light snow fall.

But most of all, December in Vienna is a peak of the music season. Vienna is a city that takes music very seriously, indeed, and it’s best to book tickets at least two months in advance. One December we forgot which venue had our particular concert. When we asked at the main concert hall, the Muzikverein, the clerk put on a sympathetic smile and reminded us that there were concerts in 40 different locations that evening.

One wants to be very careful in Viennese Advent concerts where there is the possibility of audience participation. We were at such a concert looking forward to joining in a rousing rendition of Silent Night when the father of the family of four next to us pulled out a pitch pipe and made sure everyone was in tune and prepared to sing in harmony. Right. We decided it might be best if we just listened.

Vienna is one of the few cities we have visited where the churches are packed on Sunday morning. The ancient Gothic masterpieces may lack any heating, but this does not stop the well wrapped crowds from getting there at least half an hour early. While the Catholic liturgy undoubtedly draws a good many parishioners another attraction is the full orchestra and chorus and enormous organ performing any one of the great masses of Mozart, Bach, Haydn, Handel, Beethoven – just to name a few. These churches are wise enough to put the schedule of masses on their web sites.

It is easy to forget that not that long ago Vienna was the intellectual and musical capital of Europe. The musical legacy of Vienna speaks for itself, and a brief walk around the courtyard of the university filled with busts of famous scientists reminds us of the intellectual power of a city where Sigmund Freud attended concerts directed by Gustav Mahler. The 20th century was not kind to Vienna. The tottering Hapsburg Empire collapsed after World War I leaving Vienna with the architectural accoutrements of an empire and the political power of New Jersey. The rise of the Austrian Nazis revealed the darker underside of the society, and haunting walks through the Jewish district of the city bring home the horror of those atrocities. While there are some who would like to pretend those events never happened (Beethoven, of course was Austrian while Hitler was German), modern Vienna has become a vibrant melange of cultures that were once a grudging part of the political empire.

Even the Turks, who twice besieged the city, have become an integral part of the city in many different ways. Those people who miss the lazy lunches alongside the Bosphorus need go no further than the Kervanseray restaurant in the middle of the city to get the same quality seafood and service. After a few days of Central European meat and potatoes – however disguised – it’s nice to taste the fresh vegetables and green salad more common to the Mediterranean than the Danube.

Vienna might be a member in good standing of the European Union, but at least one part of the city is a very reluctant member of the 21st century. Enjoying good cigars is as much of the city’s life today as it was in Freud’s time. Bars that in the rest of Europe would ban smokers to frigid gardens offer a welcome haven to cigar smokers.

Somehow, in Vienna this fits. It is not California with its brash, thrusting modernity and cadres of self -righteous politically correct zealots roaming the streets stamping out any deviations like red meat and cigars. This is Vienna, a city that has seen it all, lived through it all and has found a way to combine the best of the past with the reality of the present.

Sunday, 19 December 2010

The wisdom of the Founding Fathers in making sure that the House of Representatives has nothing serious to do with foreign relations is being demonstrated once again. It’s doubtful that most members can remember the capital of any neighbouring state let alone determine genuine national interest beyond the boundaries of their own district.

Now the House members are being asked to consider a resolution regarding events that happened almost 100 years ago in a part of the world they can find only with a satellite navigation system. Usually such resolutions are nothing but comic relief. However, this one poses a major problem for the United States. The resolution being considered includes very bad history and even worse foreign policy. If the House really wants to make even more trouble for the United States in an already troubled part of the world this resolution is the way to go.

Groups that say they represent the Armenian diaspora are trying, as they do every year, to get the House to pass a resolution labelling Ottoman Turkish actions in 1915 against the local Armenian population as genocide. They are trying to get the Democrat-controlled House to pass this resolution before the Republicans, traditionally less sympathetic to their cause, take over next year. Why is this seemingly innocuous, arcane, powerless resolution so potentially damaging?

A little history is helpful. As some House members might recall there was another war going on in 1915, and Turkey was allied with Germany against England, France and Tsarist Russia. The United States had not yet entered the war. Russian armies were moving into Eastern Turkey, and already the Ottoman armies had lost 90,000 men in one major engagement. Many Armenians living in that area sided with their co-religionist Russians against the Moslem Turks, an act the Turks consider treachery.

The Ottoman government of the time, a bunch of thugs mistakenly labelled as Young Turks, decided to deal with this threat of collaboration by removing the Armenian population from the area. This act in itself, however cruel, was not the first time in history that belligerent nations had taken such a step, nor will it be the last. What made this one different was the wholesale cruelty of the forced marches, murderous attacks by marauding gangs of Kurds, and the callous indifference of the government in far away Constantinople to the fate of hundreds of thousands of innocent people. The mountainous region of Northeastern Turkey that once was home to a vibrant Armenian community now contains the haunting ruins of ancient Armenian churches and crumbling, vacant villages.

Scroll forward a few years. Germany and Turkey lose the war. Victorious allies decide to carve up Turkey and give pieces to Greece, Armenia, France and Italy. Russia suffers a revolution and Lenin takes over. The old Ottoman regime crumbles and a vigorous new Turkish republic is formed. The new Turkish nation refuses to roll over, and repudiates this 1920 treaty. Eventually they push out the invading Greeks. France and Italy quickly lose heart and give up their claims on Turkey. Lenin, in dire need of friends, signs a deal with the new Turkey that sets the eastern border of Turkey – effectively ending the dreams of the resurrection of Greater Armenia. Armenians exact some measure of revenge for the deportations by assassinating two members of the exiled former Ottoman ruling triumvirate. The Russians dispatched the third one. No tears are shed. Case closed? Unfortunately, not.

The Armenian community in Europe and the United States continues to clamour loudly to have the 1915 deportations declared genocide, similar to what the Jews suffered under the Nazis. It is important to note here that there is no unanimity among historians on this point. Several noted specialists like Bernard Lewis and Norman Stone will acknowledge the bloody massacres but stop well short of calling them genocide. No credible evidence has been produced so far that the Ottoman government of the time, unlike the Nazis, ordered the systematic destruction of the entire Armenian community. It is undeniable that the massacres occurred, and it is shameful that the Turkish government has not done more to acknowledge this. But does this by itself constitute genocide? That genocide occurred is an article of faith with the Armenian diaspora, one they proclaim loudly and vociferously. But, unfortunately, that alone doesn't make it true. There is another side to the story. The one thing for sure is that the last place to determine the rights and wrongs of this issue is the United States House of Representatives.

Leaving aside the fog of history, why is the Armenian diaspora pushing so hard for the United States to declare these events genocide? What do they really want to gain? Do they simply want to be remembered as history’s victims? Are they seeking monetary or territorial reparations from modern Turkey? Over the years the vicious extremists of this diaspora have assassinated innocent Turkish diplomats and threatened historians that disagree with their claims. Is more of this what the House wants to encourage?

And more to the point, do they really expect the United States to jeopardize its relations with a key NATO ally to satisfy the claims of one single ethnic group? The very well-informed, thoughtful Turkish journalist Semih Idiz points out in a recent column in the English language Daily News that such a resolution would be God’s gift to all the anti-Americans throughout the region. Current relations with the Turkish government may be difficult, but they would be far worse if such a resolution passes. He paints in crystal clear terms what such a resolution would cost the United States.

The Armenian lobby is politically strong and has traditionally supported the Democrats. Nancy Pelosi and Senator Barbara Boxer are just two of the politicians that have benefitted from Armenian support. They should not be deluded into thinking that American-Turkish relations would remain the same if this non-binding resolution passes. If the House really wants to help resolve this issue it would pass a resolution calling on the parties directly involved to do so. Invoking American national interest in this bit of ancient history is a dangerous waste of time and effort.

Friday, 17 December 2010

People in Europe and the United States can be forgiven for being confused about Turkey. Many Turks themselves are confused. The country defies simple classification and labels. Friend? Foe? Autocratic? Democratic? East? West? Sticking any single label on Turkey distorts reality. This large, dynamic country is filled with contradictions, and those contradictions and tensions are distilled to a fine essence in the megalopolis of Istanbul.

Claire Berlinski mentions some of these tensions simmering just beneath the surface of Istanbul in her perceptive article Weimar Istanbul. She describes the uneasy shift of power from the old social and economic elite of the city to the newly arrived masses from the countryside. The government is exacerbating this tension, according to Berlinski, by its heavy-handed response to any criticism and the mass trials of its opponents that bear an unfortunate resemblance to the Soviet purge trials of the 1930s.

The contradictions of Istanbul begin with the very name. In seeking to do away with any association with the ancient Greek city of Constantinople the founders of the Turkish Republic decided the name should be changed to Istanbul. Fine, but the word Istanbul is merely a short version of the Greek phrase that means ‘to the city.’ The Turkish nationalists would become apoplectic if they realized that the word for the heartland of Turkey, Anatolia, derives from the Greek word for East, Anatoli.

Beyond semantics, the enormous demographic shift from the country to the cities has transformed the city far beyond what I remember from when I first arrived in 1964. Then, the population was less than two million, there were no bridges across the Bosphorus, and you could go for walks in the green hills on either side of the strait. I remember swimming across the Bosphorus in 1964. Now, there’s so much ship traffic I wouldn’t put my toe in the water.

Less than 50 years later the population has exploded to 13 million, there are two bridges spanning the Bosphorus, and ugly new housing developments have ripped up the once lovely green hills. Unlovely, brutal, high rise apartment complexes stomp across the western and eastern edges of the city. It now takes well over an hour, on a good day, to drive on the motorway from one side of the city to the other. The graceful old city that had withstood so many armies and so much political turmoil was finally overwhelmed by another Eastern invasion. An Anatolian monoculture has replaced the multicultural, international character of old Istanbul where several languages could be heard in the space of a few city blocks.

Old Istanbulus (natives of the city) lament this change. In their selective memories they recall the pleasures of a polyglot city where they felt proud to be part of Ataturk’s brave experiment to build a modern nation on the ashes of the Ottoman Empire. They were the vanguard of this experiment and devoted their lives to making it work. The occasional intrusions of atavistic, nationalist frenzy that drove out most of the remaining Greek population are remembered more with sorrow than with any sense of triumph. One frequently heard complaint is that the villagers who have descended upon Istanbul ‘simply do not understand what this city means. They have no appreciation for what was here.’

Beyond the yawning cultural gulf between the natives of Istanbul and the new arrivals is the shift in political power. The ruling Justice and Development Party (AKP) has very cleverly capitalized on the resentment felt by people in Anatolia toward the traditional Kemalist (Ataturk) elite. There are maybe 10 to 15 million very well educated, middle class and wealthy (some extremely wealthy) people in Turkey. There are also 60 to 65 million undereducated people who sit on the bottom of the economic ladder. Unemployment and underemployment among this group are major problems. In Istanbul alone, according to one estimate, the unemployment rate among the young new arrivals is more than 15%. The AKP has successfully appealed to the deep resentments of perceived injustice and has promised to re-align the social and political order of Turkey. Where the Kemalist elite were stridently secularist, AKP has made a point to stress Turkey’s Islamic heritage. Conservative and religious symbols like the headscarf are much more prominent now than 1964. I have often heard well dressed Istanbul women confront a headscarved villager who ventured into an upmarket neighbourhood. “What are you doing here? Go back to your village.” There is also a shift in economic power where entrepreneurs from Anatolia who just happen to support AKP are rapidly becoming extremely wealthy.

The AKP says it is simply expanding the concept of democracy in Turkey as it hounds the Kemalist judiciary and the once-proud military. An increasing number are sceptical of this claim, and recall that the prime minister famously described democracy as a train that you leave once you reach your destination. They wonder just where the destination is, and what awaits them once the train gets there.

The contradictions that define modern Turkey – Islamic/secular, autocratic/democratic, rural/urban, old/modern, liberal/conservative, nationalist/internationalist – make the American culture wars seem quite mild. One can only hope that foreign politicians, Americans in particular, can avoid stale stereotypes when dealing with Turkey, and realize that the dynamic and volatile mixture of that country does not fit easily into one narrow container.

Wednesday, 15 December 2010

The real blow for Wikileaks founder Julian Assange is not the pending Swedish legal action, but that his so-called revelations have had so little impact. In short, other than showing American diplomats doing their jobs skilfully and often with a great deal of insight, the Wikileaks cables are feeble stuff. Certainly some of them are embarrassing, although I doubt that foreign leaders entertain any doubts about the opinions held by other countries. But the big break through, the global game changer simply isn’t there. The big players are still the big players, and the bit players are still the bit players. It won’t be long before Assange suffers the greatest ignominy of all and the sheer boredom of these cables drives them from the lead story to somewhere just after the Nebraska corn reports.

What these leaks really demonstrate is that Assange, like many of the hackers who flock to his call, has only the most superficial knowledge and understanding of the material he is supplying. Take him away from bits and bytes and he wanders about helplessly like a blind man without his cane in a strange world populated with real people. He is the ultimate self-important conspiracy buff who could care less about actual facts. The facts only get in the way of a good conspiracy complete with black helicopters, financial maneuvering, and devious Americans plotting to control the world.

He and his mates merely used the key that someone gave them to peer into a box of other people’s mail. This act alone, the opening of someone else’s box, is their goal. What the cables actually say is irrelevant to the inhabitants of conspiracy world. The mere fact the cables were labelled secret is enough to get their juices going. Like all good conspiracy buffs the Wikileakers don’t, or rather can not, offer any analysis or context for these cables. The label ‘secret’ is supposed to be proof enough of the evil intentions of the United States. They miss the point that even an order for a tuna fish sandwich can be labelled secret these days. Unless, of course, you believe that a sandwich order with ‘mayo’ or to ‘hold the mayo’ is code for an attack on Iran. God knows what they would make of an order for a Philly Cheese Steak?

When inhabitants of this world emerge blinking into the bright light of reality we often find them totally inarticulate in any human language. I defy anyone to get through Assange’s rambling, incoherent justification for the leaks. These leaks are somehow supposed to make the world more secure and peaceful? Somehow they are supposed to ‘humble’ the United States? What is he talking about?

His failure to understand any context is a little like a master chef presenting customers only with little bits of dried fruit and claiming they were the entire Christmas pudding. Fanatics thinking this particular chef is infallible will dig right in with great gusto and proclaim that this is the best Christmas pudding they have ever tasted. Slightly more discerning customers just might question the absence of any other ingredients.

These cables, in themselves, reveal very little about the formation of American foreign policy. Yes, they are titillating, but they are just one of the thousands of ingredients that ultimately determine what course of action the United States follows. The fact that an employee of some American embassy reports that a local newspaper says Prime Minister X is a crook isn’t going to change much. He or she wouldn’t be the first crook the U.S. has been forced to deal with. He may buy a great many very expensive American toys, so for the time being he is ‘our’ crook. The views of the State Department have to compete with dozens of other sources competing for the ear of the President. Creation of foreign policy is not a neat, clear-cut, simplistic process. Sometimes countries are allowed the luxury of planning. Most times they are forced to react to events beyond their control and scramble to come up with a policy.

The one possible positive development from these leaks is that the State Department may reduce the number of items it labels secret. Remove the thrill of opening someone else’s mail, and the hackers could lose interest very quickly.

It’s counter productive to over-react to these leaks. Legal assaults on Assange will merely inflate his already huge self-esteem and make him more of a hero to the chattering classes of the world who enjoy the entertainment value of a good conspiracy. Hackers will eat more junk food and go into sugar induced hyper-drive in an effort to defeat the ‘foes’ of transparency. Good luck to them when the hack into the Kremlin files. They might need more than a good PR agent and a lawyer.

Wednesday, 8 December 2010

The European Union’s remedies for the economic problems of Greece and Ireland remind me of the American military approach to Vietnam. Destroy entire villages in order to ‘save them from communism.’ The EU and IMF efforts to rescue the Greek economy from its well-noted self inflicted wounds seem to be destroying any chance the country has to achieve any growth at all, let alone the growth required even to begin to repay its debts.

The indictment of the Greek economy is very long, and every one the charges is valid. Irresponsible borrowing, bloated government sector, ridiculous bureaucracy, interesting national accounting, failure of tax collection, protection of several industries, over-generous pension system, corruption, etc., etc. In short, Greece had preserved in aspic the last Soviet economy of Europe. It was a colourful museum display, but sadly ill-suited to the real world. The announcement late in 2009 that the country would have trouble repaying its debts was merely the rude awakening from the decades-long nightmare suffered by anyone who had tried to do business in Greece.

However, the self-righteous anger of the Germans and others at having to bail out this fiscally-challenged distant relative is overdone. Their mutually exclusive insistence that Greece do a root-canal on its entire economic structure by becoming, well, more German and simultaneously repay its debts on time is ensuring that Greece slides ever deeper into a hole from which it will emerge only with great difficulty.

Anyone who can count to 10 without using his fingers knows that Greece will have to, at the very least, reschedule some of its debt and get an extension on repayment of the €110 billion European bailout. The economy has ground to halt. Consumers aren’t spending what little cash they have. Banks are hoarding their funds and not lending very much. Even the almost daily demonstrations have lost their zip.

Sales of electronic consumer goods were down 30% in October. Car sales in September were down 44% in September. These figures, bad as they are, don’t tell the whole story. One leading retailer told me the damage extends beyond declining sales. Suppliers, once happy with long payment terms, are now demanding faster payment. Insurance cover for the goods is getting more expensive. Terms of whatever bank loans he gets are becoming more difficult. All of these issues cause a company’s cash to drain rapidly.

The only items that seem, based on observation, to have resisted sales decline are cigarettes and coffee. Coffee bars are filled with people – and smoke. Greece did at one time enact a non-smoking law. But the public outcry about having to cope with the unbearable stress of changing their economic lives without the comfort of a smoke was too much for any government. Besides, in a country where no one can collect income tax, how zealous are they going to be about stopping someone from lighting up in a restaurant?

The long term prescription for the Greek economy is correct. All the deeply ingrained imbalances absolutely must be corrected, but right now the patient needs food and water if it is not to become a permanent ward of the European Union. Exactly how this is accomplished is a problem for the European leaders, but the reform process must be accompanied by a serious amount of cash if the Greek economy is to reach sustainable recovery.

The trouble is that the leaders of the European Union appear as confused as the man on the street. The prime minister of Luxembourg and the Italian minister for the economy and finance recently wrote an essay in the Financial Times that called for issuing Euro-wide bonds. In the very same newspaper the German finance minister poured cold water on that idea. The next day German Chancellor Angela Merkel officially drowned the idea at birth. EU president Herman Van Rompuy says ‘something’ must be done. He says the fate of the European project is at stake. With so many people hyper-ventilating it is difficult to plot a smooth course.

Austerity alone is not going to solve the problem. Trying to force austerity on people like the Greeks who associate it something cold and northern is a little like forcing Ann Widdecombe into one of Carla Bruni’s bikinis. There will be slippages. Sooner rather than later the people of Ireland, Greece, Portugal and Spain simply will no longer accept the degradation of their life styles for what they believe is only the salvation of the banking system. This could open the door to large-scale social upheaval and the emergence of people with dangerously simplistic answers. Then, instead of carefully planned re-scheduling we could wind up with immediate in-your-face defaults as a popular policy tool. Argentina provides a clear example of the attractions of this course for unscrupulous politicians. The results for the financial stability of Europe would be much more severe than voluntary, carefully planned action.

But the first goal should be to keep the patient alive. In contrast to the Europeans the Americans seem to be focusing on immediate health issues as the Federal Reserve continues to pump money into the economy. Long-term therapy is a luxury usually reserved for patients who at least have a pulse, and right now the economic pulse of Greece and others barely registers.

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About Me

I worked as a fund manager and investment banker in Turkey and the Middle East for 25 years. Over the years I have travelled extensively throughout the region and have met many of the leading government officials, business and cultural leaders. I am married to a Greek and now divide my time between London, Turkey, and an island in the Aegean.